Doâ€™s and Donâ€™ts while investing in Mutual funds: Investor education series

Updated on
Oct 05,2018 - 05:35:21 AM

Do’s and Don’ts while investing in Mutual funds: Mutual funds are the investments vehicles in which money is pooled from many investors to invest in various securities such equity shares, bonds, debt instruments and other financial assets. Mutual funds are operated by professionally qualified managers who look after keeping the money in right places at right times to reap the best returns to the investors. However, one should be cautious while taking any decision about investing in mutual funds. This post lists out the do’s and don’ts in the context of dealing in mutual funds

Do’s while investing in Mutual funds:

Before going ahead to invest in a specific fund, check if it suits your risk profile, financial needs, possible cash outflows and its ratings and reviews.

Choose those funds having a proven track record of giving sustainable returns with low risk.

Diversify your investments into different classes of assets. Your investment allocation should be such that it serves your financial requirements while minimizing the uncertainties associated with the market risks.

Remember the fact you are a player in the market though you do not indulge in activities that influence the market either positively or adversely

If you are novice investor to mutual funds, consider investing through systematic investment plans (SIP) until you reach a position to make your own investment decisions. Consult qualified advisors in the events of dilemma.

Read all the scheme related documents carefully before you make investments. Read, read and read till you understand it thoroughly.

Always remember the fact that the past performance of a fund is not an indicative of the future prospects. It is always subject to the risks associated with the market.

Regularly track the performance of different funds in your portfolio. Consider the net loss/gain you make each day. Remember that the best funds today can become worst of the tomorrow.

Collect all the related documents in respect of your investments

Follow the periodical reports that are released by mutual fund agencies. Read them till you understand with no ambiguity left.

Choose the funds with no loads with the similar features over the one that carries a load.

In case of the loaded funds, calculate if the entry/exist load is going to affect your return adversely. Load is the amount charged as a % of your investment at the time of entry and exit.

In case of direct applications unless through the intermediaries, mark the application as direct as direct applications of most of the funds have certain edges over the ones that are done through brokers.

Always remember to mention the details of your nominee while filling the application forms.

Don’ts while investing in Mutual funds:

Don’t simply make your decisions based on the advice of a commissioning agent or analysts on the TV channels. Try to improve your knowledge of the funds by daily spending some time.

Don’t just believe in the ratings and grading of the funds. Know the criterions taken into account for the purpose of rating a fund.

Don’t juggle hastily between the short term bets with a hope to make windfall gains. At times, you may lose your investment when the market is too volatile.

Don’t invest your entire money only in one sectorial /type/class/ of fund.

Don’t sign any blank documents even if the agent/broker is well known to you.

Don’t invest in a mutual fund unless you have your own justification for landing your money there in.